Soybean farmers could reap benefits from biodiesel industry's rapid growth

By Matthew Wilde

IOWA FALLS, July 17, 2005, Waterloo-Cedar Falls Courier via CropChoice.com: Iowa's biodiesel industry is about to explode, which could lead to higher prices for local soybean farmers.

The state's three biodiesel plants now consume about 18 million bushels of soybeans, producing about 25 million gallons of the renewable fuel a year. But with one plant under construction, another to break ground this month and five more in the planning stages, state soybean officials estimate the industry will eventually consume more than 200 million bushels, or about 40 percent of last year's crop.

Soybean prices could increase 17 cents per bushel on average as a result, according to Karen Anderson, director of marketing for the Iowa State Soybean Association.

Judging by average soybean prices the last 10 years, that's good news to farmers like Dave Strickler of rural Grundy Center. With cash prices often in the high $4 per bushel to low $6 per bushel range, farmers have had a tough time turning any kind of profit without government help.

For example, last year prices averaged $5.05 per bushel, according to Iowa Ag Statistics. Iowa State University estimated the cost of production, on average, for soybeans following corn was $6.57 per bushel.

"The impact should be more demand. And with the better demand should be a better prices," said Strickler, president of the Grundy County Soybean Association.

ISA's confidence in higher prices is bolstered by recent legislation supporting biodiesel and other renewable fuels. Congress passed a two-year tax credit --- $1 per gallon for 100 percent agri-biodiesel or 50 cents per gallon for other biodiesel such as animal fat --- to give biodiesel equal footing with ethanol. It took effect in January and is expected to be renewed.

The Senate and House of Representatives are currently negotiating a new Energy Bill, which lawmakers hope to have completed by the end of the month. Each have passed their own versions, but the Senate's included a renewable fuels standard of 8 billion gallons a year, effectively doubling the use of ethanol and biodiesel in the country by 2012.

Whether it makes the final version is unknown.

"We can reverse our heavy dependence on foreign oil by investing in renewable resources right here at home," said Sen. Tom Harkin shortly after the bill passed. "This will mean new value-added markets for farmers, increased opportunities for rural businesses and tens of thousands of new jobs in the emerging bioeconomy."

Cargill is expected to break ground later this month on a 37.5 million gallon biodiesel plant in Iowa Falls, next to its soybean crushing facility. Soybean oil that once went to food and export markets will be redirected to the plant.

Iowa's three operating biodiesel plants are West Central Cooperative in Ralston, Soy Solutions in Milford and AGP in Sergeant Bluff. By the time the 25-million-gallon plant in Wall Lake comes on line later this year and Iowa Falls starts making biodiesel next April, Iowa's capacity will more than triple.

"We look at this as a positive for the state, and Iowa Falls is a major piece of the puzzle," Anderson said.

Cargill officials said the Iowa Falls facility currently crushes between 30 million to 35 million bushels of soybeans a year, making soybean meal for livestock feed and soybean oil. Even though more beans won't be purchased after the plant is built, officials said farmers still benefit.

Jim Sutter, vice president of Cargill's grain and oilseed supply chain, said they and other grain processors have had to close or temporarily shutdown crushing plants due to unfavorable market conditions. The addition of the biodiesel refinery should protect the Iowa Falls market.

"This further secures Iowa Falls as a market for farmers ... to keep it running," Sutter said.

Iowa's leading grain economist, Bob Wisner of Iowa State University, also said competition for soybeans from Iowa Falls, processors in Cedar Rapids and the Mississippi River export market could bode well for farmers. With Iowa's ethanol industry booming as well, he said buyers may have to bid up beans to keep farmers from planting too much corn.

While the 17-cent figure provided by ISA is a statewide average, Wisner said for farmers close to Iowa Falls, that could be a few cents low. On the other hand, there may be times the pendulum swings the other way, he said.

"With new demand and competition for crop acres, that should pull the prices up," Wisner said.

Grundy County is situated between Iowa Falls and Cedar Rapids --- both have corn and soybean processors --- and is home to some of the best farm ground in the state. An ethanol plant recently opened in Wellsburg as well.

With high diesel fuel prices, selling close to home is important.

Strickler said truckers charge about 12 cents per bushel to haul to Iowa Falls, while it costs 20 to 22 cents to Cedar Rapids. It costs farmers, like Strickler, who own their own semis, considerably less.

"It cuts down our costs by staying closer to home," said Mark Eilers, who farms near Holland.

Sutter said there will be no changes as far as delivering soybeans to the Iowa Falls Cargill facility once the biodiesel plant is up and running, other than maybe the price. Contracts and cash bids will still be offered.